ESMA finds differences in regulation of money market funds

The European Securities and Markets Authority (ESMA) says that it has found evidence of “significant” differences in the way EU member states implement supervision and enforcement of regulations relating to money market funds.

In a peer reviewed report, ESMA compared supervisory and enforcement practices across 30 jurisdictions, and compared the way ESMA guidelines on money market funds have been transposed into national rules in 20 of them.

Of these 20, more than two-thirds have implemented the guidelines as mandatory provisions, while the remainder have relied on measures that do not have the force of law, ESMA said, although since the report snapshot on 30 June 2012, a number of jurisdictions have adjusted their approaches to ensure compliance.

Key differences noticed by ESMA include:

   – Licensing of funds: the authorisation process for new MMFs (money market funds) varies significantly between Members States: some authorities pre-approve some or all fund documentations, others mostly rely on ex post monitoring

   – On-going supervision: several Member States have not developed a specific supervisory approach for MMFs. These regulators mainly rely on risk-based approaches of monitoring funds. A compliance-based approach is used by those Member States who have a limited number of authorised MMFs

   – Risk-based supervision: national supervisors use a variety of different supervisory approaches resulting in variations regarding: the type and frequency of periodic reporting by funds, the parameters triggering alerts to identify the risks and prioritise actions, the level of reliance on external auditors and depositories in carrying out the monitoring

   – Use of information: national supervisors usually use both quantitative and qualitative information from several different sources, including periodic reporting by supervised entities, investor complaints, and information from other authorities and other public sources. The annual and half-year financial statements of MMFs are sometimes the sole source of information.

Steven Maijoor, ESMA chair, said: “In order to promote the creation of a single European securities market, ESMA must examine whether EU rules are duly applied in a consistent manner. Our mapping on money market funds has identified that there is a need for further convergence in supervisory practices, as ultimately, divergence may hamper the proper protection of investors and may result in an unlevel playing field. National supervisors should use the findings of this exercise to identify those areas where their national rules need to be further aligned to ESMA’s MMF guidelines.”

ESMA’s money market fund guidelines were introduced in 2010 to provide a common definition of f such funds across Europe, to improve investor protection and implement certain governance rules. The guideliness apply to both Ucits and non-ucits funds, and distinguish between short-term money market funds and money market funds.

To read the full peer reviewed report click here: [asset_library_tag 6546,Money Market Fund Guidelines]

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